Pub 8 2018-2019 Issue 1

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S July • August 2018 9 This may be an opportunity for financial organizations to encourage maximum saving habits by investing in an IRA in addition to a retirement plan. Promoting IRAs and their benefits will not only help eligible millennials save smarter, but will give financial organizations another way to connect with millennial customers. part to the perceived breakdown of tra- ditional accumulation models, such as time deposits or cash accounts, because of near-zero interest rates. Low rates of return over the last several years have profoundly changed the landscape of saving—for retirement or otherwise—and this has affected the millennial popula - tion the most. As young savers, prior generations started saving money in cash accounts or time deposits and actually received a measurable rate of return from their bank or credit union. And their bank or credit union likely focused its products and marketing efforts on this accumu - lation phase. Once the prior generations entered their prime earning years and their accounts reached a substantial level, many invested larger amounts in stocks and equities for greater growth potential. Much of this was driven by their partici- pation in employer-sponsored retirement plans, such as 401(k) plans. Later, as they got older, many returned to fixed rate and insured products, like CDs and annuities with banks, credit unions, and insurance companies, to preserve their savings. Most millennials, however, have not followed that process, in large part be- cause of falling interest rates. So instead of beginning with cash accounts or time deposits to build a savings foundation, most millennial savers have been com- pelled to kick off their savings career with investment-type savings vehicles and face the risks that come with them. While some argue that employer-spon- sored retirement plans have taken the place of needing those passbook savings and CDs, studies such as the 2016Wells Fargo Millennial Study show that a large number of millennial workers are without access to a company retirement plan. The result is a considerable short- age of millennial savers, and potentially a wide retirement savings accumulation gap for these millennials. While millennials seem to have em- braced employer-sponsored retirement plans as their preferred retirement savings vehicle, they are contributing to IRAs at a significantly lower rate than previous generations. This may be an opportunity for financial organizations to encourage maximum saving habits by investing in an IRA in addition to a retirement plan. Promoting IRAs and their benefits will not only help eligible millennials save smarter, but will give financial organizations another way to connect with millennial customers. Paying Off Debt Is Priority The accumulation gap can also be at- tributed to the dilemma millennials face between wanting to save and paying off a large amount of debt, especially student loan debt. The 2016 Wells Fargo Mil- lennial Study shows that approximately one-third of millennials have college debt. In addition, millennials who incur major expenses, such as those related to home purchases or job changes and relocation, tend to dip into their savings for these costs, rather than incur more debt. Thus, they save for retirement in smaller increments. It is crucial that millennials get the most from saving what they can with a retirement savings vehicle that best fits them. This is where financial organiza - tions can begin to bridge the accumula- tion gap and create new opportunities for growth. The simple act of educating mil- lennial customers about the benefits of saving early, even conservative amounts, and leaving the money alone can make a difference. After all, small savings started early can go a long way. Small amounts saved early on in life can result in larger accumulations than waiting and saving larger amounts late in life, depending of course on investment return. Incorporat- ing tax-advantaged retirement savings accounts into this education strategy will go even further. Time to Reevaluate Each financial services provider has a role to play in helping bridge the accumu- lation gap. It may require taking a hard look at existing savings products from the millennials’ perspective. This may mean no longer viewing savers and sav- ings products the same way. It may mean reexamining products, such as the Roth IRA, reevaluating how staff is trained to promote and discuss those products, and gaining a better understanding of how to align an organization’s values with that of the average millennial. After all, a financial organization’s future success in the savings market will depend heavily on millennial consumers. n Lisa Walker, Technical Editor, Ascensus Lisa Walker is a technical editor at Ascensus. She edits articles about various topics related to IRAs, ESAs, and HSAs. Her work also includes editing and proofreading Ascensus’ online and printed publications, education materials, and client communications. Lisa started with Ascensus in 2005. She has earned the Certified IRA Services Professional (CISP) designation from the Institute of Certified Bankers and holds a Bachelor of Arts degree in English. About Ascensus Ascensus helps more than 7 million Americans save for the future—retirement, college, and healthcare— through service and technology solutions. With more than 35 years of experience, the firm offers tailored solutions that meet the needs of banks, credit unions, states, governments, financial professionals, employ - ers, and individuals. Ascensus supports over 50,000 retirement plans, more than 4 million 529 college savings accounts, and a growing number of ABLE savings accounts. It also administers more than 1.5 million IRAs and health savings accounts. For more information about Ascensus, visit www.ascensus.com .